Facebook seeks to up-end digital payment market

Facebook has filed an application with the Indian Patent Office for a digital wallet that will be baked into its instant messaging platforms. The company is preparing to enter the country’s fast growing digital payment space.

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It owns two of India’s most popular messaging platforms, WhatsApp and Facebook Messenger. The former has 200 million users; parent social network Facebook has 184 mn who use its service at least once a month, with half of them logging in every day. The company does not give numbers for its FB Messenger in India.

In contrast, Paytm, the country’s largest digital payments wallet, with a disproportionate share of the market, has 220 mn registered users. Japanese investment giant SoftBank had earlier this month invested $1.8 billion (Rs 11,600 crore) in Paytm, for a 20 per cent stake in the company.

Facebook’s entry into digital payments could spark an upheaval in the segment here, currently dominated by digital wallet apps and the Unified Payments Interface (UPI), which is supported by banks in India and the BHIM app.

In developed markets such as US, Facebook Messenger already allows users to pay if their credit cards are linked to their accounts. In India, with low penetration of credit cards and prevalence of digital wallets, the US social network is looking at a wallet integrated in its instant messaging apps.

Consumers in India made about 89 mn transactions on mobile apps in April, transacting Rs 2,200 crore between them and businesses, according to the Reserve Bank of India data.

Facebook’s India patent application chalks out a system which would allow users to link any payment instrument — credit/debit card, bank account, etc — to their instant messaging account and make payments to other users by sending a message. Facebook says its system will have several advantages over conventional payment applications.

“In theory, the concept of using a payment application on a mobile device to electronically transfer money provides a convenient method of transferring money between users. Conventional payment applications, however, have several drawbacks that often cause frustration, confusion and result in a payment process that is often more time consuming than it is worth," reads its patent application.

A spokesperson for Facebook said he could not comment immediately on the development.

WhatsApp is one among a clutch of foreign entities looking to utilise UPI to enable users to transact digitally on its platform. In its patent application, however, Facebook makes no mention of WhatsApp or Facebook Messenger, instead making references to a messaging system.

“This is coming at a time when real estate on the phone is limited and so people will say, when I’m on WhatsApp, why do I need to go anywhere else?" said Harminder Sahni, founder at Wazir Advisors. “These types of disruptions are bound to happen. Facebook has killed so many services. Microsoft and Google have killed so many services. It’s not that they went out and brought them down; they just did something better and smarter than the others."

Bharti and SoftBank-backed Hike Messenger, a competitor to WhatsApp, has also shown interest in enabling digital payments through UPI. It isn’t clear how Hike or other instant messaging platforms could be affected if Facebook’s patent application is granted.

“The systems and methods provide a transactional payment system integrated with a messaging system that allows two or more users (at least a sender and a recipient) to securely send and receive an electronic payment via the messaging system," the application reads.

WhatsApp’s entry into the space could give it a number advantage from the outset. However, it is to be seen how the company manages to capture the online to offline payment market, which Paytm has done so well. In its patent application, Facebook defines a user as an individual, an enterprise, business or even a third-party application.